The NYT told readers that "Mexico's Fiscal Prudence" is not protecting it from the world recession. The article repeatedly applauded Mexico's government for adhering to tight standards of fiscal discipline. Economists usually don't view fiscal discipline as an end in itself. Such policies are supposed to lead to dividends in the form of more rapid growth. It is not evident that Mexico's policies have had this effect. In the fifteen years from 1993 to 2008 (using projections for 2008), the IMF's data show that Mexico's per capita GDP increased at average annual rate of 1.7 percent. By comparison, per capita growth in spendthrift Argentina over the same period averaged 2.2 percent. While the policies of fiscal discipline advocated by proponents of the conventional wisdom may not have much positive impact on growth, they can get a country's growth reported in a far more positive way. For example, the Washington Post reported that Mexico's GDP increased nearly seven-fold from 1993 to 2005 (eventually corrected after much haranguing). Last December, in an editorial, the Post scaled the GDP growth claim back slightly to a still absurd "nearly quadrupled." In short, the evidence suggests that following the conventional wisdom's view of "prudent" economic policies does not necessarily help growth, but it can have a very dramatic effect on the way a country's growth is reported, at least in news outlets like the Washington Post.
--Dean Baker
